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Don't be seduced by Big Government

Why Classical Liberalism can save us during a crisis

20 04 06.littlewood.ata

In a time of crisis, government intervention is both necessary and proper, but we must remember the damage governments can do when handed too much power. The measures implemented must not be economically damaging for generations to come, and the positive impacts of deregulation must not be overlooked.

In response to the COVID-19 pandemic, governments across the world have implemented a range of measures to try and curb the spread of the virus.  Some places like Spain and Italy have adopted a heavy-handed approach and have ordered citizens to only leave their homes if they need to buy food or medicine, or to go to work or hospital. On the other hand, some nations such as Sweden have adopted more liberalised measures. At present, it is the only country in Europe that has yet to close its borders or schools, and hasn’t banned gatherings of fewer than fifty people.

Regardless of individual state approaches, it is abundantly clear that during this pandemic, governments around the world have become more involved in the day to day lives of their citizens. For classical liberals, assessing the degree to which governments should respond to any given crisis can be tricky due to our beliefs on what precisely the correct role of governments is.

Many classical liberals agree with the 19th century philosopher John Stuart Mill’s harm principle as a reasonable way to assess when governments can rightfully exercise their coercive power over citizens. In his 1859 book On Liberty, Mill argued “the only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others.”

Assessing the degree to which governments should respond to any given crisis can be tricky.

On the face of it, the harm principle works well. However, its guidelines become extremely blurry when we are faced with pandemics such as COVID-19, which many people do not know they are carrying, and which has a fatality rate of approximately 3% of recorded cases.

In normal times, it would be near impossible for government to prevent individual activity that had some risk of harm to others (for example driving a car could potentially harm another if crashed), and so typically the risk of harm falls on the individual and their own judgment. However, for the coronavirus, where cases have more than doubled in the last week alone, it’s clear the government must intervene in some way.

Beyond the specifics of the harm principle, many classical liberals more broadly believe that the role of government is to protect “the life, liberty, and property of its citizens”, as 17th century philosopher John Locke put it. Despite classical liberals generally wanting the government to play a small role in the life of its citizens, we don’t believe that governments should be incompetent in protecting lives or inept to protect society in light of a mass threat to people’s lives. Responding to a deadly crisis is as much a suitable role of government as is the imprisonment of murderers or the protection of our borders.

Despite classical liberals generally wanting the government to play a small role in the life of its citizens, we don’t believe that governments should be incompetent in protecting lives or inept to protect society in light of a mass threat to people’s lives.

Despite intervention in a national crisis being necessary, classical liberal principles can still act as a good guide for how governments can respond effectively to COVID-19, while not debilitating the economy.

The World Bank has previously estimated that between 80 – 90 percent of the total economic impacts of recent pandemics comes from aversion behaviour, rather than the disease, deaths or the loss of production. This means any economic measures put in place by governments to avert the spread of COVID-19, should be done so cautiously.

Policies such as travel bans, especially between countries that already have a similar level of cases per capita, can be extremely damaging to the economy and even the World Health Organization has advised against them on the simple premise that COVID-19 is already everywhere, but vital medical equipment and supplies are not. As Swedish economist, Johan Norberg, has recently noted, “one reason why Italy has suffered terribly seems to be that closed borders gave them a false sense of security and made them underestimate the spread already going on within the country.” Health researcher Dr. Clare Wenham at the London School of Economics has also branded travel bans mere “political placebo”. Turning inward in times of national emergency is the wrong path for governments to take.

One lesson from recent history that we should be quick to remember is the harm caused by nationalist policies.

One lesson from recent history that we should be quick to remember is the harm caused by nationalist policies that some governments implemented after the financial crash. Some countries banned the export of food based on the premise that this would help secure local food supplies. Rather than achieve the intended effect, these measures instead caused a food price crisis. Later analysis showed such isolationist policies accounted for 40% of the increase in the global price of wheat, and almost a quarter of the increased price of corn by 2011.

As well as ensuring policies that harm economic activity are removed as quickly as possible post-crisis, governments have a responsibility to ensure that existing regulation doesn’t impede the remaining economic activity. In order to remove the barriers between businesses and customers, in recent weeks many governments have rightfully been engaging in a fairly radical deregulation programme.  

In the United Kingdom, to assist supermarkets, a variety of competition laws have been relaxed so that retailers can pool staff, share distribution depots and delivery vans, and compare data on stock levels. The 5p tax on plastic bags has also been removed to speed up online orders. There has been a liberalisation of rules on the hours truck drivers can work if they transport food, key household items or pharmaceuticals. Daily driving hours have been increased by two, alongside a commensurate two-hour reduction in enforced rest. Pubs and restaurants, despite being prohibited from serving customers on site, may also be able to play a role in providing the public with food by being able to serve as takeaways, where previously a separate permit was required.   

A similar trend has occurred internationally. In the United States, similar trucking laws have been liberalised, several states have removed regulations prohibiting doctors from working across state lines, and the Food and Drug Administration is now allowing private companies to administer coronavirus testing without a lengthy approval process. In Germany, new laws have allowed supermarkets to open on Sundays.

However, despite the vast amounts of deregulation, in other ways government intervention in the economy during this crisis has reached new levels.

Some nations like the United States have passed, or are looking to pass, enormous stimulus bills to try and keep their economy afloat. The U.S.’ stimulus package is worth a whopping $2 trillion, with $500 billion of that going to help corporations and another $250 billion put aside to give every American making $75,000 or less, a cheque of $1,200 to spend at their whim.

One potentially positive long-term implication of this pandemic is that it could recalibrate government institutions to be more prepared for genuine threats.

Freely giving away money to people or select businesses should never normally be a proper role of the government, but the idea of pay-outs could potentially be an appropriate role of government given the times we’ve found ourselves in. Some classical liberals such as the Cato Institute’s Andy Craig have written that instead of complicated corporate bailouts, a simple universal payment is coherent with what classical liberals view as the proper role of government. Craig justifies his perspective by claiming “it is not feasible for the government to abruptly order massive shutdowns of so much economic activity without some kind of compensation, in much the same way we require just compensation for eminent domain.”

Besides the short-term responses from government, one potentially positive long-term implication of this pandemic is that it could recalibrate government institutions to be more prepared for genuine threats in the future. For example, rather than Public Health England in normal times being preoccupied with trying to ban flavoured e-cigarette liquids or trying to further taxes on sugary drinks, they might instead become more orientated towards preventing genuine public health emergencies. Similarly, across the pond, the FDA may become more willing to relax some rules to allow greater innovation and more rapid rollouts of much needed medical technologies.

Ultimately, when once in a blue moon events such as pandemics occur, it is right that government does all it can to protect the life of the citizens within its borders. However, leaders must ensure that any economic measures are put in place only to help their citizens and do not impede future economic activity. While it could be tempting for many governments to issue large bailouts, states must be careful as these costs will only add to the enormous fiscal debts most Western nations have accrued, which could impede the ability of future generations to respond to crises in their time of need.

 

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